Getting a visit from the Internal Revenue Service (IRS) is something that can put a damper on your day. IRS revenue officers only visit when the responsible party is behind on their tax payments, so chances are, you are having financial difficulty, or someone is complacent in their duties. Here’s what to expect.
First, you need to know what an IRS revenue officer does. As their title implies, an IRS revenue officer is employed by the IRS to collect taxes that are owed. They will identify themselves as such and show identification. The IRS has adopted a policy to send two Revenue Officers per case. As a business owner or employee, remember that an IRS revenue officer is trying to collect information to facilitate the collection of taxes.
An IRS revenue officer will visit your business or home, as well as send mail or call. They will never ask for direct payment although they can levy or attach assets of all sorts. If you receive a call from someone claiming to be from the IRS and they ask you to transfer funds, it is a scam. For more information about IRS scams, please visit the IRS website.
What to Expect from an IRS Revenue Officer
You may receive letters or a visit from a revenue officer. The first step they pursue is to start an investigation into your business. This involves a Trust Fund Recovery Penalty assessment and a 4180 interview.
The IRS is trying to determine what assets they can seize, if needed, and who are the responsible parties. In some cases, innocent parties can become ensnared as well.
So what does all that mean?
Who is a Responsible Person?
One of the first things an IRS revenue officer will do is determine who could be a responsible party. If the IRS believes you were responsible for the taxes not being paid, or you should have known they were not being paid, you could be liable.
The IRS will look at several factors:
- The person has power to compel or prohibit the allocation of funds
- The person has the authority to sign checks
- The person has the authority to make decisions as to disbursement of funds and payment of creditors
- The person is an officer or director of the corporation
- The person has control over the company’s payroll
- The person prepares and signs payroll tax returns
- The person actively participates in day-to-day management
- The person hires and fires employees
- The person in on the bank signature card
This means the IRS can target managers, owners, business partners, stakeholders, bookkeepers, secretaries, and others. However, in IRS Policy Statement 5-14 (Internal Revenue Manual §220.127.116.11.3), the IRS states individuals who are non-owner employees performing ministerial acts without exercising independent judgment will not be deemed responsible.
What Happens if I Am Found Responsible?
If you are found responsible, you will be a part of the investigation. That doesn’t mean you will face charges or assessed liability. In addition to being a responsible person, that person must also be found to have willfully failed to pay the tax.
The IRS is aggressive in collecting payroll taxes. In a number of cases where taxpayers have behaved egregiously, it has also pursued criminal prosecutions that landed offenders in jail.
Can I Avoid IRS Interviews/Investigations?
Yes and no.
All remedies available for an individual taxpayer are still available if the IRS comes after you personally for the trust fund taxes.
If you want to avoid the Trust Fund Recovery Penalty and/or the 4180 interview the best thing to do is hire a professional. Here are a few other options.
Agree to the Trust Fund Recovery Penalty
If you agree to the penalty, you can cancel the interview. The purpose of the IRS investigation is to decide if you (or others) were decision-makers in the business and controlled financial decisions.
You would call the Revenue Officer and request IRS Form 2751 (Proposed Assessment of Trust Fund Recovery Penalty). If you sign the Form 2751 you agree to the liability and the IRS Revenue Officer has the discretion to end your investigation.
Streamlined Installment Agreement
You can enable a direct debit streamlined in-business installment agreement. Internal IRS guidelines permit a Revenue Officer to cancel his trust fund investigation if the employment tax liability is under $25,000, and the business can pay it back in 24 months.
The IRS may end their investigation if you can prove that you can’t pay them. The IRS will require you to complete a personal financial statement-Form 433A and a business financial statement-433B, and satisfy them that you cannot pay. This could, however, lead to closing of the business.
In practice, the IRS Revenue Officer can be tough on interpreting the vague standard of whether the debt could ever be collected, and will assert the trust fund penalty to you personally unless you can make other arrangements.
If your intention is to continue the business you will have to stay current on payroll taxes going forward. There is always the risk the IRS will close the business and sell the assets. This can be tricky to negotiate.
Statute of Limitations
If the statute of limitations on assessment of the Trust fund recovery penalty has passed, then the IRS cannot look into it. The IRS has three years to complete their investigation.
The three years generally begins on April 15 of the year after the employment tax returns were due to be filed.
Have An IRS Expert on Your Side
Dealing with IRS revenue officers on your own is rarely a good idea, especially if you’re unsure how to navigate the legal landscape. Trust Tax Relief Advisers to help. We will save you time, money and frustration, and will help you create a plan to avoid future tax problems.
Our staff are legal experts with years of experience dealing with the IRS — some of them are former revenue officers themselves. Let us help you get back on your feet and take control of your finances . Give us a call today for a free consultation.